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Sovereign ups payout but 'market wary'
At the weekend‚ Eastern Cape-based Sovereign posted a 72% increase in headline earnings to 103c per share.
A dividend of 34c per share was proposed‚ covered three times by earnings. Revenue was up 19% to R1.65bn.
Sovereign's shares were up 5% shortly after the release of the results‚ but market watchers believed investor enthusiasm for the company was muted.
Vunani Securities agribusiness expert Anthony Clark said Sovereign had been undervalued for years mainly due to its conservative strategies.
Sovereign boasts a net asset value of 942c per share‚ meaning the share trades at a discount of more than 10%.
Clark argued that the recent acquisition of Tydstroom abattoir in Hartebeespoort for R120m might also keep investment sentiment in check.
"They are entering a very competitive market where there is risk. Some shareholders might have preferred Sovereign to stick to its traditional operating niche and rather used its capital to pay larger dividends."
There have also been persistent calls for Sovereign to buy back its own shares.
Sovereign has said the abattoir would allow the company to slaughter 250‚000 more birds per week and secure greater access to the Gauteng market and large customers.
In his operational review‚ Sovereign CEO Chris Coombes said the company had achieved a higher net sales price thanks to a strong improvement in overall market conditions and the strategy to move away from commodity products towards higher-margin‚ value-added and fresh products.
Sovereign's ebitda (earnings before interest‚ tax‚ depreciation and amortisation) margin fattened to 8.8% from 7.2% in the previous year‚ despite the cost of broiler feed per unit sold jumping 5% and nonfeed costs increasing 16%.
Encouragingly Sovereign‚ which only a few years ago needed two rights issues to bring debt down to manageable levels‚ has reduced its gearing to negligible levels.
Coombes reported that strong operational cash flows (R147m or R124m on a net basis) coupled with lower debt levels saw net finance costs dropping to just R2.8m.
Sovereign's cash balance stood at R71m at the end of February‚ equivalent to about 93c per share.
Coombes said the local consumer remained under financial pressure. Industry selling prices would continue to be dominated by import levels‚ which would be affected by the African Growth and Opportunity Act negotiations in the US and imports from European countries not affected by the antidumping tariffs.
Source: BDpro via I-Net Bridge
Source: I-Net Bridge
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